During periods of inflation, LIFO will typically result in a lower value of inventory which allows dealers to lower their tax liability for a period of time.  However, this may only be a temporary advantage.  The benefits of LIFO will be lost when the dealership is sold or the entire inventory is liquidated.

There have been a series of proposals during the past five years to change or repeal LIFO which would tax the recorded reserves.  It may also increase business taxes because the companies will no longer be allowed to use LIFO to protect themselves from rising inventory costs.  If LIFO were to be repealed, it would be the equivalent of a company selling all of its assets, receiving no cash, but having to pay tax on the sales.  The LIFO repeal will provide a windfall tax to the government at the expense of small business owners throughout the country. 

Your tax advisor can help you determine the potential impact of LIFO termination and help you setup a plan to alleviate some of the pain.  In the mean time, contact your local Congress person and tell them not to pursue the LIFO appeal.

Barbara Smith, CPA and Amber Powell

Q:  Do I need to give a privacy notice to everyone who walks into my sales showroom?
A:  If the person is simply “shopping” and no personal information is exchanged you do not need to give a privacy notice.  If personal information is exchanged and you intend to disclose their personal information to a third party to extend them credit then you must give them a privacy notice.

Q:  My customer has agreed to finance the purchase of a car and has signed a retail installment contract.  I have signed this contract over to a third party lender.  Isn’t it then the lender’s responsibility to give a privacy notice?
A:  According to the Privacy Rule, when a dealer enters into a retail installment contract with a person to finance their purchase they are establishing a “customer” relationship therefore you must give a privacy notice no later than when the borrower signs the installment contract even though you intend to assign the contract to a third party.  Once the contract is assigned, you no longer have a “customer” relationship and are not responsible for providing annual privacy notices.

Q:  Do I need to give a privacy notice to cash buyers?
A:  No, the Privacy Rule does not apply to you when a person pays with cash or arranges their own financing.

Q:  After processing a person’s application, we have decided to not accept the application and have no plans to share the information with a third party.  Do I have to give a privacy notice?
A:  No, a person’s application that has been denied is not considered a “customer” and since no installment contract has been signed you do not need to give a privacy notice.

Looking for more information?  Visit www.ftc.gov for an extensive list of topics on consumer protection.

Jennifer Enck

Prior to an audit the auditor will generally send the controller a list of items needed for the audit.  This list can be very detailed or very general.  I like to send a detailed list of the items needed.  My list includes things that need to be available to review and things I need copies of such as bank reconciliations and bank statements.  During the audit the auditors will have questions and need access to certain records.  If you can have the items requested ready when they walk through the door there will be less questions and interruptions from the auditors.

Prior to the auditors coming to your dealership it is important to review the list of requested items and make sure they are ready for the auditors.  As an auditor I understand the demands on the controller and how valuable their time is.  I provide the list to cut down on the questions and interruptions.  For example, during a recent audit I requested a copy of the flooring reconciliation.  The reconciliation was not provided at the beginning of the audit.  When I asked the controller for it he indicated he would check on it.  As it turned out the reconciliation had not been completed.  Things like this slow down the audit tremendously.

Controllers are generally concerned about the cost of audits.  The more work you and your staff can do the less time the auditor spends and the less time they charge for the audit.  For example, my list generally includes items that I need photocopies of for my records.  Making photocopies for me and having them ready when I arrive to begin the fieldwork can help cut down the time I spend there and reduce the time charged for your audit.

The best thing you can do for the audit to go smoothly is have the items requested when the auditors walk through the door.  If there are items on the list that you don’t understand or won’t be ready, contact the auditor and let them know before they start their fieldwork.

I hope this helps your next audit go a little smoother.

Kane Lavin, CPA

• You must check the Specially Designated Nationals List (SDN), also known as the “OFAC List,” for every customer you do business with.  If you perform transactions with a “blocked person,” you may be fined between $50,000 and $10 million with the possibility of incarceration.

• The Form 8300 must be filed with the Internal Revenue Service within 15 days of the date the cash was received.  The dealership must also have an anti-money laundering compliance program.  This program must be in writing and be designed to prevent the dealership from facilitating money laundering and the financing of terrorism.  Non-compliance with these guidelines may result in fines of $25,000 to $500,000 and possible jail time.

• Failure to comply with the Federal Trade Commission’s Do-Not-Call Implementation Act of 2003, and subsequent Do-Not-Call Improvement Act of 2007, may cost $11,000 or more.

• The Gramm-Leach-Bliley Financial Modernization Act of 1999 requires companies to give consumers privacy notices that explain the information-sharing practices of the dealership.  These privacy notices must be given to the customer at the time of the initial transaction and on an annual basis if their account remains open.  Failure to do so may cost as much as $11,000.

• The Federal Trade Commission’s (FTC) Used Car Rule requires dealerships to post a Buyer’s Guide on every used vehicle.  If the sales transaction is conducted in the Spanish language, the dealership is required to have the customer sign a Spanish version of the Buyer’s Guide.  Non-compliance can cost you $250 to $11,000 per occurrence.

• Most states require that the title be transferred to the new owner within 30 days of the transaction.  The fines vary by state, contact your local motor vehicle department for details.

Federal regulations regarding documentation and compliance are constantly being implemented and updated. How do you know if your employees are following all of the policies and procedures you have in place?  Let us help you.  Check out our website to see what types of services we provide and what we can do to make your life easier. 

Amber Powell

We have all heard many of the horror stories about accidents that happen at stores and these accidents cause the dealership to spend a lot of time and money to resolve the incident.

Have you ever thought about managing the risk of not making as much profit as the store should?  I have seen too many times “Risk Management” focuses on insurance expense and lawsuit control.  It is rare that I have seen stores worried about the risk of losing upside potential.  I am here to challenge us all to think of and keep “front of mind” the profits lost with poor or nonexistent oversight policies.  I also have seen many stores who have good oversight policies but poor execution of the plan.  Doing so leaves the dealer with a false sense of security and thinking all profits being available to be captured, in fact aren’t.

Let’s focus on the basics – Most of what we do in dealership operations is relatively easy.  If you don’t already have one; create standard inspection forms for managers to sign off. 
For example:

• Closing repair orders
• Deal summaries
• Accounting schedule summaries on key accounts
     o CIT
     o Cash clearing
     o Warranties
     o Etc.
• Gross margin percentages
• Other key indicators

Put the burden of reporting on the managers.  These inspection forms should include explanations provided by the managers.  The more emphasis and expectations that are placed on the department managers, the better and more profitable each department will perform.

Let’s make the most out of what we have!

Donny Kretschmar, CPA

I define a pack as an amount of money added to the cost of the vehicle without adding value to the vehicle. A typical pack may be $500 added to the cost of every new vehicle.

The accounting for this transaction should be a debit to inventory and a credit to a contra asset account for the same amount. I suggest you schedule the pack account by stock number (preferably on the same schedule as the corresponding inventory). Once the vehicle is sold, the contra asset account is relieved and posted against cost of sales.

Not all dealers account for packs as described above. I have seen dealers add the pack to the inventory and the offsetting credit goes to cost of sales or other income as soon as the vehicle is posted to the general ledger. This entry creates false income for the dealership. I have also seen dealers correctly post the pack to a contra asset account, but at the end of the month they need more bottom line and they borrow income from the pack account. This too creates false income for the dealership.

As an auditor I generally ask the controller to provide me a list of all packs and their offsetting entries. This prevents time wasted trying to figure out which packs have been added to inventory and how they were accounted for. So do your auditor a favor and give documentation of your various vehicle packs at the beginning of the audit.

Kane Lavin, CPA